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Returning Member

Where do we enter the portion of mutual fund income that is from U.S. government bonds, etc., to get the tax exemption?

Vanguard sent me a flyer "U.S. government obligations information" that contains the percentages of income from certain mutual funds that are from federal bonds, etc.  For example, their Federal Money Market Fund and their Prime Money Market Funds have income from federal bonds. The flyer states that this income is usually EXEMPT from taxation in most states.

Yeah! That is great news! 

However, where do I enter this into Turbotax (desktop DVD version)? 

If it matters, I'm in California.

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Level 15

Where do we enter the portion of mutual fund income that is from U.S. government bonds, etc., to get the tax exemption?


@Radtree wrote:

However, where do I enter this into Turbotax (desktop DVD version)? 


You would start in the Income section of TurboTax (that varies slightly depending on your exact version). Click the Start (or Update) button to the right of Dividends on 1099-DIV, enter the figures, ensure that you check the box next to A portion of these dividends are U.S. Government interest, and then enter the amount of U.S. Government interest (see screenshots).

 

The U.S. Government interest amount should be transferred to the adjustments section of your California income tax return. Note that the fund must have at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations to qualify. See page 41 --> https://www.ftb.ca.gov/forms/2018/18_540bk.pdf\

 

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Level 15

Where do we enter the portion of mutual fund income that is from U.S. government bonds, etc., to get the tax exemption?


@Radtree wrote:

However, where do I enter this into Turbotax (desktop DVD version)? 


You would start in the Income section of TurboTax (that varies slightly depending on your exact version). Click the Start (or Update) button to the right of Dividends on 1099-DIV, enter the figures, ensure that you check the box next to A portion of these dividends are U.S. Government interest, and then enter the amount of U.S. Government interest (see screenshots).

 

The U.S. Government interest amount should be transferred to the adjustments section of your California income tax return. Note that the fund must have at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations to qualify. See page 41 --> https://www.ftb.ca.gov/forms/2018/18_540bk.pdf\

 

1.png2.png3.png

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Level 1

Where do we enter the portion of mutual fund income that is from U.S. government bonds, etc., to get the tax exemption?

I live in North Carolina and I have a feeling that mutual fund dividends from government obligations are not exempt in North Carolina . Is that right?

I know interest from government obligations are  but I have a feeling mutual fund govt obligations  dividends are not though in most state they are 

 

Can someone verify this

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Expert Alumni

Where do we enter the portion of mutual fund income that is from U.S. government bonds, etc., to get the tax exemption?

You may have to do some research to determine what is being reported on your 1099 form. US government securities do not pay dividends, they only pay interest. So, normally income from investments in mutual funds that hold US government securities would be interest income and exempt from taxation in North Carolina.

 

However, your mutual fund may report gains and losses on the sale of US government securities, and those gains or losses would be taxable or deductible as capital gains.

 

I assume the "dividends" you are referring to is actually interest income, but you would have to verify that with your broker.

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